The present invention relates to a system and methods for a business tool for generating pricing and assortment decisions in a retail setting for the realization of a given business goal. This business tool may be stand alone, or may be integrated into a pricing optimization system to provide more effective pricing of products. More particularly, the present business product decision system may identify and categorize customers into segments based upon customer attributes and behaviors. From these generated segments, the system may generate product assortments and pricing and promotion decisions for the assortments in order to produce a desired result, such as market share expansion, profit maximization, consumer behavior manipulation or some combination.
For a business to properly and profitably function, there must be decisions made regarding product assortment, pricing and promotional activity which, over a sustained period, effectively generates more revenue than costs incurred. In order to reach a profitable condition, the business is always striving to increase revenue while reducing costs.
One such method to increase revenue is providing a desirable set of products and properly pricing these products or services being sold. Additionally, the use of promotions may generate increased sales which aid in the generation of revenue. Likewise, costs may be decreased by ensuring that only required inventory is shipped and stored. Also, reducing promotion activity reduces costs. Thus, in many instances, there is a balancing between a business activity's costs and the additional revenue generated by said activity. The key to a successful business is choosing the best activities which maximize the profits of the business.
Choosing these profit maximizing activities is not always a clear decision. There may be no readily identifiable result to a particular activity. Other times, the profit response to a particular promotion may be counter intuitive. Thus, generating systems and methods for identifying and generating business activities which achieves a desired business result is a prized and elusive goal.
Currently, there are numerous methods of generating product pricing through demand modeling and comparison pricing. In these known systems, product demand and elasticity may be modeled to project sales at a given price. The most advanced models include cross elasticity between sales of various products. While these methods of generating prices and promotions may be of great use to a particular business, there are a number of problems with these systems. Primarily, these methods of pricing are reactive to historical transaction data. While some effort is made to increase consumer purchasing, these systems are less able to drive particular purchasing behaviors. Additionally, these systems treat the consumer as an aggregate entity. There is little granularity within the consumer base, thereby limiting the specificity of business activities to a particular group of the consumer base.
Returning to the basic principles of sound business management, that being increasing revenue while reducing costs, by introducing specificity of the consumer base in the generation of business decisions a store may achieve more targeted (less cost) promotions which more effectively (increased revenue) influence the purchasing behaviors of the relevant consumers.
Moreover, most current price modeling systems generate pricing for a known set of products which have existing historical transaction data. Current systems have difficulty modeling new products. Further, these current systems are virtually useless in generating models for hypothetical product assortments.
It is therefore apparent that an urgent need exists for improved system for generating product decisions which is responsive to greater granularity of customer behavior as well as allowing for assortment modeling. This improved decision analysis enables highly targeted promotions and more effective promotional activity as well as product line manipulation. When coupled to a pricing optimization system, the decision system may generate more finely tuned pricing for given products. This business decision system provides businesses with an advanced competitive tool to greatly increase business profitability.